Investors can now invest in the growing number of customized managed portfolios based on exchange traded funds, but there are a few factors to consider when picking out an ETF strategist.
ETF strategists who handle these managed portfolios comprised of low-cost ETFs have different investment methodologies and styles. Consequently, investors with different investment objectives will need to consider a couple of factors when looking into ETF managed portfolios, writes Ari I. Weinberg for the Wall Street Journal.
ETF managed portfolios are a growing segment of the separate accounts space, with a class of so-called ETF strategists that help select ETFs from the nearly 1,600 options available on the market. As of the end of 2013, there were 648 different strategies offered by 153 firms, with $96 billion in assets under management, according to Morningstar data. [ETF Managed Portfolios Gain Traction]
An investor’s financial advisor can use a ETF managed portfolio service.
“A financial adviser should consult on key topics such as how a strategy can help to achieve a client’s goal,” Ling-Wei Hew, an analyst at Morningstar who follows ETF portfolios, said in the article.
ETF managed portfolio strategies come in many different flavors. Some ETF strategists provide a complete, all-in-one diversified portfolio, and others can focus on sectors or countries. Moreover, ETF strategists can actively buy or sell to maximize potential gains in more tactical portfolios that capture short-term moves while some can take a more long-term, strategic approach, or a combination of both tactical and strategic strategies.
Fees on managed portfolios may differ, depending on the brokerage firm. For instance, your financial advisor could be paying commissions and custodial fees if the strategist is not part of the brokerage’s preferred list. On the other hand, there are some managed ETF account programs for self-directed investors. For instance, Charles Schwab, through its Windhaven unit, offers portfolios with a minimum investment requirement.
Investors can also monitor ETF strategists’ performances through brokerage firms, ETF strategists and researchers like Morningstar.
Alternatively, investors could consider target-date or asset-allocation funds to gain a comprehensive, all-in-one investment offering. For example, BlackRock’s iShares and Deutsche Banks’ db X-trackers provide target-date funds for investors with a target retirement horizon. Income investors could look at options like the First Trust NASDAQ Multi-Asset Diversified Income Index Fund (NasdaqGM: MDIV) and the Guggenheim Multi-Asset Income Index ETF (NYSEArca: CVY), one of the elder statesmen of the multi-asset ETF group. [Multi-Asset Menagerie With These ETFs]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.